3.

XYZ Company uses job order costing. At the beginning of the year, the manager of the company estimates a fixed manufacturing overhead cost of $285,000 and a variable manufacturing overhead cost of $11.50 per direct labour hour. The manager also estimates that a total of

26,500 direct labour hours will be required for the coming year. At the beginning of the year, XYZ Company had the following inventory accounts:

Raw materials $5,000

Work in process $13,000

Finished Goods $10,000

The following transactions took place during the year (all sales and purchases were on account):

i. Raw materials worth $500,000 were purchased for production purposes.

ii. Raw materials worth $300,000 were requisitioned for the use in production (two-third of the amount was direct material and the remaining indirect material).

iii. Utility bill for the factory totaled $5,000. Utility bill for the corporate office of XYZ Corporation totaled another $5,000.

iv. Due to higher level of production, the total direct labour hours worked was 27,300, for the whole year. The labour were paid at a rate of $15.00 per hour.

v. The indirect labour cost amounted to $326,000.

vi. Additional salaries of $267,000 were given to selling & admin staffs.

vii. Depreciation cost incurred $575,000 (65% was factory machinery related and the remainder was office equipment related).

viii. Advertising expenses of $50,000 were accrued and unpaid.

ix. Maintenance cost for factory machinery incurred $25,000.

x. XYZ Company incurred a total of $220,000 as a cost of renting the buildings. (80% of the building is factory and the rest in corporate office).

xi. Manufacturing overhead was applied to all jobs.

xii. 1200 units were completed and transferred as finished goods. 800 units were sold to customers at a selling price of $1300 per unit.

Required :

a. Prepare journal entries to record Quakers factory related transactions. (You must also write the journal entry for no. xii after calculating the cost of the mentioned number of units).

b. Create T- accounts for the following items: Raw Materials, Work in Process and Manufacturing Overhead.

c. Calculate whether Manufacturing Overhead is Over Applied or Under Applied, explain your answer. Journalize the entry for MOH over/under applied.